Comparing Greenbook and Reduced Form Forecasts Using a Large Realtime Dataset

51 Pages Posted: 14 Sep 2007 Last revised: 8 Feb 2021

See all articles by Jon Faust

Jon Faust

Board of Governors of the Federal Reserve System

Jonathan H. Wright

Johns Hopkins University - Department of Economics

Date Written: September 2007

Abstract

Many recent papers have found that atheoretical forecasting methods using many predictors give better predictions for key macroeconomic variables than various small-model methods. The practical relevance of these results is open to question, however, because these papers generally use ex post revised data not available to forecasters and because no comparison is made to best actual practice. We provide some evidence on both of these points using a new large dataset of vintage data synchronized with the Fed's Greenbook forecast. This dataset consists of a large number of variables, as observed at the time of each Greenbook forecast since 1979. Thus, we can compare real-time large dataset predictions to both simple univariate methods and to the Greenbook forecast. For inflation we find that univariate methods are dominated by the best atheoretical large dataset methods and that these, in turn, are dominated by Greenbook. For GDP growth, in contrast, we find that once one takes account of Greenbook's advantage in evaluating the current state of the economy, neither large dataset methods nor the Greenbook process offers much advantage over a univariate autoregressive forecast.

Suggested Citation

Faust, Jon and Wright, Jonathan H., Comparing Greenbook and Reduced Form Forecasts Using a Large Realtime Dataset (September 2007). NBER Working Paper No. w13397, Available at SSRN: https://ssrn.com/abstract=1014344

Jon Faust (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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202-452-2328 (Phone)
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Jonathan H. Wright

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States

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